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American Economic Journal: Economic Policy: Vol. 3 No. 2 (May 2011)

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The Surprising Incidence of Tax Credits for the Toyota Prius

Article Citation

Sallee, James M. 2011. "The Surprising Incidence of Tax Credits for the Toyota Prius." American Economic Journal: Economic Policy, 3(2): 189-219.

DOI: 10.1257/pol.3.2.189

Abstract

This paper estimates the incidence of tax incentives for the Toyota Prius. Transaction microdata indicate that both federal and state incentives were fully captured by consumers. This is surprising because Toyota faced a binding production constraint, which suggests that they could have appropriated the gains. The paper proffers an explanation based on an intertemporal link in pricing that stems from search frictions, which has the unconventional implication that statutory burden influenced economic burden. The paper develops a bounding estimator to account for endogenous selection into preferential tax regimes that may be useful in other contexts. (JEL H22, H24, L11, L62)

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Authors

Sallee, James M. (U Chicago)

JEL Classifications

H22: Taxation and Subsidies: Incidence
H24: Personal Income and Other Nonbusiness Taxes and Subsidies; includes inheritance and gift taxes
L11: Production, Pricing, and Market Structure; Size Distribution of Firms
L62: Automobiles; Other Transportation Equipment

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